- (a) an enterprise of a Member State participates directly or indirectly in the management, control or capital of an enterprise of the other Member State, or where
- (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Member State and an enterprise of the other Member State,
and in either case, conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.
(2) Where a Member State includes in the profits of an enterprise of that State and taxes accordingly profits on which an enterprise of the other Member State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall proceed to make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Regulation, and the competent authorities of the Member States shall if necessary consult each other. In this case, the States concerned shall submit to the Commission within three months from the date of the agreement, the results of these consultations.
(3) The provisions of paragraph (2) shall not apply if, following a judicial, administrative or other legal process , a final decision has said that because of actions leading to an adjustment of profits, one of the enterprises is liable to a penalty for fraud, gross negligence or willful default.